Question 2 3.00000 points Save Answer A contractor has been awarded the contract

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Question 2 3.00000 points Save Answer A contractor has been awarded the contract to construct a six -miles-long tunnel in a mountainous area. During the five- year construction period, the contractor will need water from a stream near to the construction site. A pipeline system is required to convey the water to the construction site and you are asked to choose the best alternative from the following pipe sizes. The pump will operate 2000 hours per year. The pump and pipe are depreciable, but the salvage value will cover only the cost of removal at the end of the five years. The lowest interest rate at which the contractor is willing to invest is 7%. Use present worth method. 2" 3" 4" 5" Installed cost of pipeline & pump $22,000 $23,000 $25,000 $30,000 Cost per hour for pumping $1.2 $0.65 $0.50 $0.40 Browse My Computer Browse Content Collection Attach File -

Explanation / Answer

The present worth of alternative 2" = $31,840.47

The present worth of alternative 3" = $28,330.26

The present worth of alternative 4" = $29,100.20

The present worth of alternative 5" = $33,280.16

The alternative with the lowest present worth of costs is alternative 3". Hence alternative 3" is selected.

Alternative 2" Alternative 3" Alternative 4" Alternative 5" Year Cash outflows Year Cash outflows Year Cash outflows Year Cash outflows 0 $22,000.00 0 $23,000 0 $25,000 0 $30,000 1 $2,400.00 1 $1,300.00 1 $1,000.00 1 $800.00 2 $2,400.00 2 $1,300.00 2 $1,000.00 2 $800.00 3 $2,400.00 3 $1,300.00 3 $1,000.00 3 $800.00 4 $2,400.00 4 $1,300.00 4 $1,000.00 4 $800.00 5 $2,400.00 5 $1,300.00 5 $1,000.00 5 $800.00

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